Unions work to restore pension package

Different views: A textile manufacturing unit. The labour ministry’s attempt to lower the threshold for provident fund coverage has been rejected by the ministry of micro, small and medium enterprises

Updated: Wed, Nov 12 2008. 12 14 AM IST

New Delhi: Trade union representatives on Tuesday started working towards restoring pension benefits to tens of millions of workers who risk having these cut significantly after a government decision to change the way of calculating retirement payments.

Different views: A textile manufacturing unit. The labour ministry’s attempt to lower the threshold for provident fund coverage has been rejected by the ministry of micro, small and medium enterprises. Santosh Verma / Bloomberg

The efforts came during the the trustees’ meeting of the Employees’ Provident Fund Organization (EPFO), the country’s social security organization which has around 44.4 million members.

The decision to “rescind” the notification was “unanimous”, said W.R. Varada Rajan, a trade union representative from the Centre of Indian Trade Unions. He added that till this was done, the notification would be “put on hold”.

The trustees left the decision to annul the notification to EPFO chairman and Union labour minister Oscar Fernandes. Fernandes could not be reached for comment till Tuesday evening.

According to a labour ministry official, who was present at the trustees meeting but did not want to be identified, Fernandes has been empowered to take a decision on revoking the notification to reduce pensions.

Mint reported on 8 November that the labour ministry had, in a notification dated 1 October, said pensions would be based on average monthly salaries drawn through the entire period of an employee’s contribution to the Employees’ Pension Scheme (EPS) instead of the last 12 months as has been the practice.

The labour ministry official, however, said one of the employees’ representatives on the board of trustees, whom he declined to identify, countered the views of some of the trade union trustees.

The dissenting trustee said that if pension outgo were not reduced soon, the burden of funding pensions would be transferred to another generation.

The EPS run by the EPFO offers a guaranteed pension to private sector employees who are a part of the scheme. The scheme has an unfunded gap of about Rs42,000 crore, Rajan said, and the finance ministry is to ask EPFO to find ways of reducing the gap.

The unfunded gap is the difference between the pension scheme’s current assets and an actuary’s estimation of the scheme’s projected liabilities.

The finance ministry’s desire to find a solution to the unfunded gap has also held up the labour ministry’s attempt to expand the scope of the Employees’ Provident Fund and Miscellaneous Provisions Act by lowering the threshold for coverage under the Act from firms with 20 employees to those with 10 employees, as reported by Mint on 11 November.

“(The) finance ministry has said, if you want to reduce the threshold limit from 20 to 10 (employees), first address the deficit in the pension scheme,” Rajan said.

The labour ministry’s efforts to lower the threshold has also been opposed by the ministry of information and communication technology and the ministry of micro, small and medium enterprises. Another official in the labour ministry said that the two ministries had rejected the proposal when a note seeking the opinion of various ministries was circulated among all ministries last week.

“We tried to convince them about the need to bring more workers under social security, in the light of the slowdown in the economy and fears of job losses. However, they do not agree with this view,” said this official, who did not want to be named.

A senior official with the ministry of micro, small and medium enterprises confirmed that the ministry had indeed objected to the proposal of the labour ministry. “The associations representing the small-scale units across the country are opposed to this proposal. So we cannot support this by ourselves,” said this official, who also did not wish to be identified.

“It is understandable that the ministry may have objected to this proposal. There is a fear in the ministry that in the case of the smaller units, employees’ contribution money may not be forwarded to the fund. These units can also get abused by government officials concerned who may order repeated inspections,” said Rajeev Karwal, founder director, Milagrow, a consulting firm focused on small and medium enterprises.

An official with the department of information technology, who asked not to be named, said the ministry had blocked the proposal on the basis of feedback from companies that adhering to the compliance requirements would be difficult.